tv Nightly Business Report PBS August 22, 2014 7:00pm-7:31pm PDT
this is "nightly business report" with tyler mathisen, and susie gharib. >> it's getting better. fed chair janet yellen says the u.s. economy is improving, but not enough to worry the markets about moving up the rate hiking timetable. >> slipping. why buying and then quickly selling houses is back in vogue but this time the game has changed. and stripping. the vegas strip is back, as the first casino in five years opens its doors. we have all that and more, tonight on "nightly business report" for this friday, august 22nd. >> good evening everyone and well company. it's billed as a kind of summer camp for 3407b tear policy superstars. the annual retreat for central bankers hosted by the kansas city federal reserve in jackson hole, wyoming. and today amidst the elk, the moose and the low-hanging clouds
came two speeches from arguably the two most powerful central bankers in the world. and their stories were very, very different. federal reserve chair janet yellen's highly anticipated speech described an improving u.s. job market albeit one that is improving slowly, and an economy that is making progress. but her european counterpart, mario draghi, described the euro area economy as one that is sick, and made clear that the u.s. and europe are on very different economic paths. but those weren't the only headlines out of the symposium. something happened there in jackson hole today that has never happened before. protests. steve liesman has more. >> reporter: under the shadow of the cloud shrouded ground tetons fed chair janet yellen and ecb president mario draghi addressed the bankers in jackson hole and their speeches spoke of growing differences in their interest rate policies and economies. in fact, zradraghi noted in his
speech that the paths of u.s. and european monetary policies. draghi said the euro area economy was uniformly weak and that unemployment was way too high. draghi made a strong appeal for european governments to increase their spending, and noted, european central bank was about to launch two programs to stimulate the economy. yellen said the labor market in the u.s. is improving. and gave it even handed summary of the debate over just how much labor slack there is. yellen said that if progress in the u.s. accelerated, the fed could move up the timetable for a moving stimulus. neither draghi nor yellen made any new policy pronouncements and extensive interviews with federal reserve bank presidents show the real debate inside the federal reserve is between raising rates in the spring or the summer of 2015. >> i am holding to the mid 2015 view, as the time in which i think conditions will probably come to the to make it a sensible move. but as i just said, and as chair yellen said this morning, if we
see very, very strong data, and they exceed expectations, then i think it could possibly be moved forward. but as of now i'm still -- i'm a mid 2015er. >> but jim bullard the st. louis fed president thinks an earlier move is warranted. >> i don't think a little more hawkish slant has to be bad news for the economy. it means that the committee could be more confident that the economy is going to imroffe in the future, and is going to be able to handle the high rates that will eventually come. >> a new appearance at the meeting this year was a small group of around ten protesters. they urged the fed to keep rates low and focus on unemployment. >> the federal reserve has its hands on the leaves of macro economic policy. and we need the fed to know that raising interest rates right now would send millions of people out of work, and it would be a terrible way to try to combat asset bubbles. >> the conference focusing on labor is looking in-depth at the effects of technology, demographics, fed policy and government regulation on wages and unemployment. and it may just influence policy
in the months ahead. for "nightly business report" in jackson hole, wyoming, i'm steve liesman. >> robert mctier is very familiar with debating interest rate issues inside the fed. for many years he was a voting member of the fed's policy committee when he was president of the federal reserve bank of dallas. so nice to have you back on the program. >> thank you. >> well, let's begin talking about, of course, interest rates. when and how much? when do you think that interest rates are going to start notching up if you were voting inside the fed? and how high are they going to go ultimately? >> i was a july person and i think after today i'm probably a march person. i think chairman yellen tempered just a little bit away from her extreme dovish vuepoint. i don't expect, though, once they start up to go up very fast. they'll just barely -- barely start going up. they'll worry about the consequences in financial
markets, and certainly you don't want to be very long, long-term bonds when that starts happening. >> you know, mr. mctier, you raise a very interesting question. i mean the fed in pulling restricting its bond buying it's gone at sort of a $10 billion a month pace. i would expect when they start to raise interest rates, you tell me, that they'll move up a quarter point intervals. but one of the key questions here seems to me is what is the new normal for where the fed funds rate will end when the fed ends raising it? some people think it's 4%. some people think lower. what do you think? >> i don't know. two or three points down the inflation rate, i suppose, would be the ultimate destination. but a lot has changed. and we don't know what all has changed. one of the most important debates that's going on there is the extent to which the labor force dropout, the reintroduction in the labor force participation rate is
cyclical phenomenon, or a secular demographic phenomenon. if it's secular and long-term, and based on just an aging population, the fed would make the mistake trying to bring that back too vigorously. that's the important thing. but in addition to the dropouts in the labor force, something that did not come up significantly in the chairman's statement today is the very poor record of productivity gains of the last three years. we've hardly had any gains in productivity. so what you've got is fewer people working, and those that are working aren't producing much more next year than this year. so it's a very -- it augers ill for the potential output of the u.s. economy and that's what they're trying to do. they're trying to reach potential without going beyond it. >> i'd like to just switch our gears a little bit here and talk about this disconnect between what's going on in europe's economy and what's going on here
and the two very different presentations at the meeting today in jackson hole between mario draghi and janet yellen, to what extent do europe's problems maybe change the timetable for raising interest rates, or doing other economic moves here in the u.s.? is there any impact at all? >> well, we are trading partners with them, and extreme weakness in europe would have an effect on this economy. i wouldn't expect it to be extreme. but they appear to be doing into a triple dip recession. i mean they've already had sort of a double dip, and now they seem to be going back the ecb is way behind the curve relative to the fed. the fed was aggressive very early on, and they dawdled around for a couple of years before they got very serious. they were even raising rates at i think in 2011. this was probably before mr. draghi replaced mr. trichet. but they were -- they're really
playing catch-up right now, i think, and need to be. >> okay. we really -- >> also, i might add, i might add that the european governments were fighting recession with austerity. and we were not primarily because we had good luck in krong but we had a fairly expansive fiscal policy in the early stages of our he will coverry. >> maybe a thing or two they can learn from the stuff we're doing here. mr. mctier, thank you so much for coming on the program. it's been a pleasure talking with you. >> my pleasure. >> former president of the dallas federal reserve bank. the reaction on wall street to janet yellen's speech was somewhat muted. as few clues were given about the course of interest rates, really. also keeping a lid on gains, a flare-up in the conflict between russia and ukraine. by the close the dow fell 38 points. the nasdaq up 6. s&p off about 4. for the week, though, all three indexes were higher by more than 1.5%. that's a good week, with the blue chip index, and the s&p
turning into their best weekly gains in four months. >> so it's not surprising that new investment data show investment -- investors still have a love affair with stocks. they poured nearly $18 billion into global stock funds last week, according to the bank of america merrill lynch. that's the biggest net inflow since october. and a sign of increased appetite for risk, $3 billion went into high yield bond funds. that's the first time in six weeks. >> but the corporate bond market is heading for another record year. "the wall street journal" reports that companies have sold nearly a trillion dollars of bonds in the u.s. so far this year. that's up more than 4% from a year ago. and sales are now on pace to break a trillion faster than ever. while some of that money is to pay for new investments, a lot of it is being used for things like refinancing current debt, and buying back shares. >> oregon is suing oracle over its troubled health care website. the state's attorney general
says she's filing a lawsuit against the company and several of its executives for their role in the state's health exchange. the suit seeks more than $200 million in damages, and alleges that oracle made false estimated and submitted false claims. oracle was the largest technology contractor working on oregon's health insurance enrollment website known as cover oregon. the site was never made available to the public and earlier this month, oracle filed its own lawsuit against oregon over disputed bills. >> united health care has applied to sell policies in 24 states on the consumer marketplaces next year. including major markets like texas and pennsylvania. this year, the insurer sold health plans in just four states. an official says the new markets offer a growth opportunity. still ahead, did janet yellen's comments today make investors more confident about buying stocks? and if so, which ones? our market monitor has some answers.
fundamental ral prosecutors are now questioning general motors lawyers on the recalls according to "the wall street journal" the government is looking at whether employees inside and outside the automakers' legal team department there concealed evidence from regulators about a faulty ignition switch, potentially delaying the controversial recall. the investigation is reportedly in its early stages. >> with car sales running at their strongest pace in eight years, it's easy to forget that the used car market is also in the midst of one of its strongest years ever. it comes as the industry sees a
surge in the number of more recent in demand models hitting used car lots. phil lebeau has more on the hot summer for used car dealers. >> reporter: name your price. at the mannheim auto auction south of chicago, hundreds of dealers are doing just that. buying and selling thousands of used cars. >> we'll have probably 3500 cars that we'll go through and a car will be sold every 30 to 45 seconds. i call it the daily miracle. this, of course, is the wholesale auction business here. >> mannheim is seeing strong demand by dealers due to a growing wave of used cars rolling into showrooms. three and four-year-old models built as automakers ramped up production coming out of the recession. >> there's going to be a lot more desirable used vehicles hitting the market shortly. and when that happens, there will be more interest for people who are still driving that old clunker. >> yes, even the old clunkers will be resold here.
as will recalled models that have been repaired. but the real action is with models just a few years old. they can be turned around and sold quickly. >> the hottest thing we see today are certified pre-owned cars. a car that is two or three years old. you remember years ago a 3-year-old car was an old car. today a 3-year-old car with 36,000 miles in many ways is like a new car. >> the good news for those who buy used instead of new, prices that have been steadily rising since 2009 are expected to ease over the next two years. as a greater supply of pre-owned cars hilts show rooms. while the typical vehicle sold at this auction will go for a little over $12,000, the price you and i will pay by the time they're cleaned up and sent to a dealership will be closer to $20,000. proof that for these dealers, the price is right when it comes to cashing in on america's demand for used vehicles. phil lebeau, "nightly business report," illinois.
the power company dynegy is bulking up its generation capacity with two big buys and that is where we begin tonight's market focus. dynegy is spending more than $6 billion to buy several coal and gas powered generation plants from duke energy, and the private equity firm energy capital partners. the move will nearly double its power generation capacity, and allow it to retail electricity in new markets. shares of dynegy up almost 9%, $32.32. duke off a little bit at $72.87. shares of peregrine semiconductor surged after japan's murata manufacturing said it would buy the rest of the radio frequency chipmaker that it doesn't already own. they will pay $465 million in cash for the company. peregrine was up about 63%. you heard me right. $12.53 making the small cap stock the biggest percentage gainer today on nasdaq. some technical issues at wall green today, hope you didn't
have to try and fill a prescription. half its stores were unable to fill them because of a database failure. the drugstore chain has been able to restore the systems at most of those locations. shares were off a fraction to $61.050. and in incorporated posted earnings and revenue that topped estimates but a weak outlook disappointed investors and ann taylor cut its sales guidance for the rest of the year because of soft traffic and continued promotions and that sent shares down more than 3% to $37.52. bucking the trend of down the earnings from retailers foot locker posted a beat on the top and bolt up lines. its second quarter profit was up almost 40%, as its sales continued to climb. shares rose about 3% to $54.12. keurig and kraft have joined forces. now keurig will make kraft branded coffees like gevalia, maxwell house and even mcdonald's coffee for its single serve keurig brewing system. the financial terribles of the
deal weren't disclosed. the stock jumped 13% to $133 and change. meanwhile, an executive shake-up at mickey d's. mcdonald's is replacing its u.s. press for the second time in two years. the move comes as sales at mcdonald's restaurants in the u.s. have been slumping. shares were off slightly at $94.45. our market monitor guest says today's fed news should make investors more confident about buying stocks. he's sandy lincoln, chief market strategist for bemo asset management u.s. welcome back, good to see you. what did you hear today, or over the past couple of days, out of jackson hole that makes you feel a little more sanguine about stocks? >> she did a really nice job today, didn't she? she went through a pretty granular explanation of why she thought the markets and economies were in pretty decent shape i thought and with some good specifics and then she set aside that argument for awhile and talked about her concern about labor and some of the
slack, as well. and obviously as you point out, tyler, she didn't really move markets today which is probably a good thing. but i think what's interesting to me is that the tantrum is finally coming to an end, instead of a bang, it's coming the tantrum on the qe is coming to an end as a whemper. and basically people have completely pulled their gravitational interest to the next interest rate hike, when that might occur and the track ektly of it as you were talking about it with mctier. that's clearly where the focus is. i think for investors the lesson here is that when interest rates do hike, remember the causality, and that's typically an improving economy. and when you have an improving economy, stocks actually do pretty well as interest rates rise. so for investors i think you want to be looking at that first part to the first half of 2015. might see a rate hike, and if we do, stocks should do well, and favor the cyclicals in particular, and potentially things like technology, industrials, and even small caps in that environment.
>> you have some technology and small cap stocks to tell us about. let's start with the first one called sky works. this is trading on the nasdaq, swks is the ticker symbol. >> sky works is a company that most people don't know of but they certainly use their products every day. they make analog chips. they're in the smartphones, they're riding a real wave of demand at this company in china they moved from 2g to 3g to 4g there's a tremendous increase in demand for these chips. here in the states and elsewhere is this development called the internet of things where these chips are used to remotely do things like check your appliances at home, adjust the hvac at home, check the security cameras in your house, and use the applications in industrial and manufacturing settings, as well. so they're riding a demand wave that we think could feed top line sales growth for this company in double digit territory. so even at an entry price in the
mid 50s roughly for this stock we think for a longer-term investor, this is a great story riding that kind of demand for the analog chip market. >> sales growth is a real theme and important metric for you tripoint homes talk to me about that one and why you like it. >> tripoint homes is very much under the radar, tyler in terms of people knowing it. they know pulte or leonard, this is not necessarily a name they know. just went public a couple of years ago. they bought the real estate portfolios from fire houses which has some phenomenal properties in the southwest and california, they got attractive prices on those. they built communities of homes. they've got a good sales back ground going on in those as well and a good tail wind from real estate in general and we think this is a place where entry point of 14 or so you've got a real good opportunity and an upsi a company like tripoint home. obviously you've got to have some confidence that the building story on housing has more upleg to it than down. >> sandy tell us about hasbro. a company everybody knowles the toymaker.
>> everybody knows the toymaker. hasbro's got three or four important catalysts that people may not be aware of. they've worked hard to improve margins that's been a big story but they've also worked hard in internationally getting a lot more attraction in south america, a lot more attraction in asia, as well. they've done a very good job at a third level of marrying toys with movies as you know, so transformers, comes. there's a toy, there's a movie. we're going to get a new release in 2015 on star wars that will mean a new set of toys for them at 15 or 16 times earnings. and carries a nice dividend of 3.4, 3.5% we think entering here is a good time for hasbro as well. >> you know your stuff. any disclosures here? >> no, do not own them personally or family members. >> thanks very much. have a great weekend. sandy lincoln is chief market strategist at bemo asset management u.s. >> the tale of two cities. while atlantic city struggles, las vegas sizzle. as we've been reporting the rebel will be the atlantic
city's fourth casino to shut down this year then way across the country a new hotel in sin city the first one in five years is opening its doors. why is vegas doing so well? jane wells reports. >> reporter: vegas is back. mostly. as they prepare to open the first hotel casino on the las vegas strip in five years, the sls, it's clear that this is no longer your prerecession sin city. for one thing, the next generation of vegas tourists spend less on gambling, more on food and entertainment. >> we're seeing growth away from gaming. las vegas is becoming less and less gaming centric and much more dependent on night life coverage, room rates, fine dining. >> reporter: while revenue per room spending is up almost 11% on the strip this year, gaming revenues are up only a third of that. which is good news for the newcomer sls. born out of the club and restaurant scene in los angeles. >> the millennials right now when you look at night life in general, they're spending at
levels that are astronomical compared to where it was 15, 20, 25 years ago. because it's aspirational. >> reporter: sam says only a third of sla revenues will be from gaming, the rest from nongaming. that is a reversal of the traditional vegas model and there's another change going on the center of gravity in las vegas is shifting to the long neglected northern part of the strip. in addition to the hundreds of millions of dollars spent by parent company sbe to put the sls on the old sahara site billions are coming in from foreign developers to take over abandoned projects nearby. international travelers to vegas spend on average $400 more per trip than americans do, and even further north in downtown las vegas, zappos ceo tony shea is leading a renaissance. suddenly this part of town is cool. >> literally since we broke ground here at the sahara, there's been over $10 billion of investment that have gone on in to the ground right around us. >> too much capacity coming
online? >> it's complimentary capacity. >> vegas is growing again, but in a new direction. literally. for "nightly business report" jane wells, las vegas. and from the vegas strip, to the house flip, coming up, buying and then quickly selling a home, was all the rage before the housing crisis. now some are doing it again but this time around things are different. remember the flipping fad of buying and then selling a home within one year? well, it's getting tougher now that house prices are pulling back. that's why some house flippers are turning to one segment of the market that's still right
hot. diana olick explains. >> reporter: when this northwest d.c. home sold in january, it definitely didn't look like a million bucks. in fact, the buyers, real estate agent crystal get and her contractor husband eric, paid about half that. >> it's definitely a tightening market. you know, sellers are wise to the fact that they can get a bit more for their house. >> reporter: so they focus on the high end. and it's paying off. today, fully transformed and expanded, this four bedroom, three bathroom home is under contract for nearly a million dollars. >> it's like any business, really. if you go after, you know, the small individual clients where you have to do 100 accounts, right? or do you go after, you know, as i used to say in the business world the white whale where you're getting five or six clients but your profit margin is higher. >> the house needed a major gut job. but it was in the right d.c. neighborhood, where demand is high, and prices are still gaining fast. they paid about $535,000 for it in january and put a whopping
$250,000 in to it after that. a high stakes risk that paid them back $140,000. house flipping is actually falling nationwide, as those big home price jumps we saw last year ease and the margins get tight. but high end flips, those priced at $750,000 and above, are up 21% from a year ago. markets with the highest dollar amount of gross profit are san jose, california, washington, d.c., san diego, los angeles, and seattle. all have an average gross profit of more than $100,000 per flip. these markets are the most profitable. but also some of the toughest. >> flipping houses is getting the property at a great price and there's just very, very few properties in our area at low prices. >> it's a needle in a haystack. >> it's also more work and energy, right? >> but a platinum needle if done right. for "nightly business report" i'm diana olick in washington. >> to read more about the new
high end home flipping trend and for a list of the markets with the best return on flips go to our website nbr.com. and that's "nightly business report" for tonight. we're not going to see you on monday and for all next week you're going on vacation. >> i'll see you in september, everybody. >> well you have a great time, tyler. >> thank you. all right i'm tyler mathisen. thanks for watching. and i will see you in september. >> and i'll be back here on monday.
gwen: an american citizen executed by a terrorist. how far will the u.s. go to stop them? and the attorney general steps in in ferguson, missouri. tonight, on "washington week." >> isil speaks for no religion. no just god would stand for what they did yesterday and what they do every single day. >> oh, this is beyond anything that we've seen. so we must prepare for everything. gwen: a shocking act takes the life of an american hostage. the alarming rise of a terror group. and mourning at home. he was courageous, fearless journalist. very compassionate american. i mean, best of america. gwen: what next? and ferguson, week two. the violence fades but